Record debt levels feared to undermine growth potential

Interest-bearing debts owed by the government, individuals and companies in Korea exceeded 2,500 trillion won (2.29 trillion U.S. dollars) last year, more than double gross domestic product, data released Sunday said.

Data from the Strategy and Finance Ministry and the Bank of Korea said interest-bearing debts owed by the government, individuals and non-financial companies reached a record 2,586.22 trillion won (2.37 trillion dollars) last year, up 7.4 percent from 2009 and more than double the debt level of 2002.

Considering nominal GDP amounted to 1,172 trillion won (1.07 trillion dollars), the combined liabilities exceeded GDP by more than double.

The corporate sector had the largest debt amount at 1,281.84 trillion won (1.17 trillion dollars), followed by individual debts at 937.28 trillion won (859.10 billion dollars), up 8.9 percent from 2009 to reach a record high. Debts owed by government organizations, including the central, municipal and provincial governments and social-security organizations, amounted to 367.1 trillion won (336.48 billion dollars).

Experts say the high debt level of individuals is feared to hurt the economy`s soundness and undermine its growth potential. Though debts owed by non-profit private organizations are included in private-sector debts, most of the liabilities are household loans.

In particular, households are vulnerable to a depressed property market, as they are heavily exposed to mortgage loans. As of 2009, Korean households’ debts was 144 percent on average to disposable income, more than 20 percentage points higher than that of the U.S., whose financial crisis was caused by a real-estate market crash.

Korea`s public sector showed the highest speed of debt growth. Government debts were 267.8 percent higher last year than in 2002, higher than debt growth of 93.7 percent in the corporate sector and the 88.6-percent increase in individual debts. Public debts are surging due in large part to high welfare spending, and continued growth is feared to adversely affect the overall economy.

Debts owed by state-run corporations are also soaring. They accounted for about 25 percent of corporate debts but their liabilities are growing much faster than those of private companies.

Last year, state-run companies’ debts was 74 percent higher than in 2002, whereas the private sector`s debts increased 80.5 percent over the same period.

Experts say the government and state-run companies must manage their debt levels to strengthen national fiscal soundness.

“Korea’s fiscal soundness is in better shape than those of other major economies and is improving faster than expected,” said a Strategy and Finance Ministry official. “The government will manage its debts at a proper level as steady declines in economic growth potential amid the low birth rate and aging society are expected to decrease tax revenues despite surging demand for welfare spending.”

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